How to Reach International Success With the CAGE Distance Model
Is your company ready to expand to new regions and countries? It seems exciting at first, the prospects of gaining the loyal following of a new market, but have you conducted the CAGE framework analysis?
Company strategists and sales managers look at international giants such as Total, Apple and Coke and wish to imitate the longstanding success they’ve enjoyed. According to a Harvard Business School study, very few companies succeed in going global. It takes up to 10 years of foreign market sales and dedication to make at least 1% return on investment.
This article will provide an easy to understand explanation of the CAGE framework. We will look at the basics of the CAGE framework as a strategy when expanding goods and services into a foreign market.
Is it time to implement the CAGE framework to determine international viability?
What is the CAGE Framework?
The CAGE framework (also referred to as the CAGE distance framework) is a quantitative tool that is substantiated by gravity models to determine the distance between four critical pillars of business. It is an outstanding analytical tool for companies that develop intercontinental strategies with an aim of the large-scale expansion of their businesses.
The CAGE framework is made up of 4 components:
- Cultural differences
- Administrative difference
- Geographical difference
- Economic difference
The CAGE analysis will determine what significant changes and challengers there will be when taking a company (or brand) into an extraneous market.
The world economy is under severe strain at the moment, and it is imperative to conduct as much research into expanding into foreign markets as possible. The CAGE analysis will reveal the most important differences between their home base and foreign markets when expansion strategies are on the table.The CAGE analysis will point out the biggest differences and considerations about cultural, administrative, geographical and economic factors that will influence costs and sales in the new country.
CAGE Framework Example
Large international corporations have successfully ventured into foreign markets, but the price to pay is enormous if they are not prepared or knowledgeable about their new market.
The CAGE framework looks at the following areas:
Cultural differences can have an impact on the goods or services your company offers and their uses in different cultures. A CAGE framework example of cultural difference is how the people of the new market will use and interpret the company’s offer. For example, Fanta soft drink is peach flavoured in Botswana, and the same product is adapted to appeal to the taste and cultural differences of the Japanese market to be more floral. Each foreign market will have its preference for food, products, and brands. And these cultural differences will determine what needs to be adapted, as part of the CAGE analysis, to provide a lucrative product or service.
Administrative differences could be the difference in permits and protocols from country to country. Applying for a licence to provide a service or to produce a product in the earmarked country might be very different to the process undertaken in the home country. A CAGE framework example of the administrative difference is commonly found in the licencing and permits associated with production, services or imports of goods. Each country will have their own set of rules and regulations to comply with and determining whether this will be viable and profitable will determine the success of the company.
Geographical challenges such as access to public infrastructure in a new market (or country), physical landscape (for transportation) or time zone differences can be a great challenge when investing in a foreign market strategy. The CAGE analysis should take into account if the product and service will be accessible by their proposed clientele. Is the country vast and remote, offering little engagement with the product/service or are the towns and populated areas conducive to trade and will there be a need?
The economic difference between a first world country and a developing country is colossal and could determine whether the service or product is viable in the new market.
Factors such as production, packaging and logistics are key considerations for economic CAGE analysis. Once the key strategy team has evaluated the cultural, administrative and geographical differences, they have to determine whether the new market will be economically viable. At times this is the factor that does not allow companies to break through a new market due to an exorbitant increase in costs.
Example of Failing CAGE Framework Analysis
Companies look at foreign ventures as opportunities for high profits, emerging markets through the accessibility of the internet and exploiting gaps in the current market. Many companies fail to comprehend the authenticities of international business in the quest for globalization.
Here is an example of how the lack of a thorough CAGE analysis brought producers of baby products to their knees in a new market.
Need Help Crossing Boundaries?
The CAGE analysis is a useful and powerful framework to rationalize and take an analytical approach to the expansion of a company. The in-depth investigation into the feasibility can prove to be a massive task, but with the help of Consultport Academy’s Internationalization Strategy Course, you will gain an understanding of the CAGE Framework and how it impacts your business as well as the tools for evaluation of the varying differences which will impact expansion.